Pillar 3 disclosures

Introduction

Hermes GPE (‘Hermes GPE’ or ‘the LLP’) presents its Pillar 3 disclosures in accordance with the Capital Requirements Directive (‘CRD’).

Overview

The CRD requires firms to implement a framework which relates capital to risks and consists of three ‘Pillars’:

1. Pillar 1 sets out the minimum capital requirements for credit, market and operational risks;

2. Pillar 2 requires firms and supervisors to assess the need for additional capital for risks not adequately covered by Pillar 1 by implementing an Individual Capital Adequacy Assessment Process (ICAAP); and

3. Pillar 3 deals with disclosure requirements and is to complement the minimum capital requirements of Pillar 1 and the risk-based processes of Pillar 2. The disclosures are designed to promote market discipline by providing market participants with information to help them assess a firm’s risk exposures and processes.

This Pillar 3 disclosure document is designed to meet the LLP’s Pillar 3 obligations and has been approved by its Members and Executive Committee. Given the operations and the complexity of Hermes GPE, the Members do not consider it necessary to make disclosures more frequently than annually, unless there have been material changes to either the business model or the way in which the capital requirements are calculated. The disclosures will be as at the Accounting Reference Date which is currently 31 December.

Scope and application of the requirements

Hermes GPE is the parent firm of a number of subsidiaries and is required to prepare consolidated reporting for prudential purposes. There are no impediments to the prompt transfer of capital between Group entities should the need arise. There are no differences in the basis of consolidation for accounting and prudential purposes.

Risk management

Hermes GPE is authorised and regulated by the Financial Conduct Authority (FCA) and as such is subject to minimum regulatory capital requirements. The LLP is categorised as a BIPRU CPMI firm by the FCA for capital purposes. It is an investment management firm and as such has no trading book exposures.

Hermes GPE’s primary risk exposure is to operational, reputation and business risks related to the possibility of a significant decrease in revenue arising from a decrease in assets under management (‘AUM’) or assets under advisory (‘AUA’). The legal structures of the funds managed by Hermes GPE are long term in nature with binding client commitments and fee revenues for the duration. However, a decrease in AUM or AUA could occur should clients choose to replace Hermes GPE as the manager or advisor of such funds or seek liquidity for their investments.

The Executive Committee of Hermes GPE has limited appetite for accepting operational risk. However, it recognises that no system of internal control can fully mitigate errors, losses or inappropriate activities occurring.

At Hermes GPE, the overall business risk strategy and appetite and the control environment is determined by the Executive Committee. Its philosophy and operating style impact the way Hermes GPE is managed on a day-to-day basis, including the types of risks accepted. The Executive Committee is responsible for assessing the capital adequacy requirements of the business in line with SEC and FCA regulations and ensuring that sufficient levels of capital are maintained to meet its regulatory requirements and to mitigate the key risks present in both its current business and future strategy and for ensuring that an annual review of internal controls is conducted.

In order to embed risk management throughout the firm, Hermes GPE has a comprehensive risk governance structure, including policies and procedures, management reporting and system controls to identify, mitigate, monitor and control risks. Hermes GPE has adopted a Risk Management Policy which addresses all principal risk areas for the business and the mitigations which the LLP has in place.

Please click here for the full disclosure document.